Budgeting and Forecasting 2021
For the CFO, the phrase “compliments of the season” is synonymous with “budgeting and forecasting”. The start of a New Year always signals the final checks ahead of the next financial year.
Even if your fiscal year does not start on the first of March (as with many South African businesses), it’s always good to look at your books with rested eyes after the holidays. This is especially true after a year like 2020!
To make the most of 2021, we have created this list of solutions to help you avoid everyday budgeting and forecasting mistakes.
Be Real With Budgeting and Forecasting Estimates
When you are filled with hope for the year ahead, it’s easy to overestimate profit. It is even easier to aim a little too high when we are still gauging the effects of subdued earnings last year. Consumer and business confidence alike are low after our rating downgrades in December.
The best thing you can do for your business when budgeting and forecasting is to be real when setting targets. Take an honest look at inflation, market conditions, your output capabilities and costs.
As usual, always look at historical data, but never reuse a budget! Remember that circumstances have changed and take any product/service changes that you may have introduced into account.
Account For All of Your Costs
It is equally as easy to overlook or underestimate costs and increases. After a turbulent year, we would expect to see this happen in the payroll or IT departments, where the most significant changes probably took place last year.
Lockdown and its subsequent changes in business travel, technology (to support work-from-home and network security), and scaling your workforce would have skewed any numbers typically used to model a budget.
You will most likely need to reimagine the business from a zero base to support recovery in 2021.
Prepare Quick-Turnaround Cash Flow Strategies
Cash flow remains the lifeblood of a business.
The most important lesson to take from 2020 is to remain nimble—able to switch or deploy cash flow strategies rapidly. As we saw, circumstances can change in the blink of an eye. Debtors can be forced to halt business operations—or worse, liquidate. Precious stock can get stuck at the docks.
Have a reaction plan in place that will allow you to scale as needed.
It goes without saying as well that it is essential to keep emergency funds available. The interest on relief loans, bridging finance or the cost of being overdrawn on accounts in a depressed market can create a vicious debt cycle.
As counter-intuitive as it may sound, speak to your finance professionals about inflating the amount that you would usually reinvest into the business.
Shorten Reporting Intervals
In light of how quickly things can change, it is wise to check your reports more often than usual. Tracking, monitoring and reporting are excellent tools to help you to remain agile.
Your reports will reveal if your plans are working, or if you need change strategies. It is the easiest way to spot unnecessary spend, business inefficiencies or identify opportunities to keep your ship sailing.
Don’t look at your reports in isolation either. Compare your performance against your budget and forecasts. Doing so will allow you to make appropriate amendments if your projections may have been too conservative or generous.
Secure your Success with the Right Resources
You wouldn’t dare skydive without a parachute—yet so many businesses chop-off their success at the knees by not investing in the right tools.
Accounting software to automate mundane (yet critical) tasks is essential. Implementing the right measures and controls in the business, even more so! Sound financial policies and procedures will, in fact, help you to gain the most from your accounting software investment. Cloud-based accounting systems can also have a direct impact on improving business cash flow.
So, how do you determine which policies, measure and controls to implement in your business? How do you know which software will support your efforts best? Seek wise advice from experts. There’s no price you can place on having trusted partners in your corner to coach and guide.
At Exceed, we practice excellence; our valued clients’ success is our highest priority. We exist to make managing your business finance as easy as possible.
Book a business consultation today